Monthly Archives: June 2009

Types of Depreciable Property

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In general, depreciation is allowed on tangible and intangible property with a limited useful life of more than one year that is used in a trade or business or held for the production of income.

There are two basic property types:

  • Personal property, which under IRS Code, includes all depreciable property other than real property.
  • Real property which includes buildings and their structural components.

Additionally, property can be either listed or not listed. Most property is not listed, but there are specific rules and limitations placed on listed property.

With regards to listed property, IRS Code Section 280 (F) details that both personal property, such as airplanes, boats and cellular phones, and real property, such as entertainment or recreational property like a vacation home can be listed property. The depreciation deduction for listed property is limited under IRS Code.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Determine Eligible Property for Depreciation

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This is the first question many people have when dealing with fixed assets.  What property am I allowed to depreciate?

Well, depreciation is basically a deduction for capital expenditure.  It is considered a reasonable allowance for the wear and tear of assets used in a trade or business or for the production of income.

Property is eligible for depreciation if meets all these conditions:

  • It is used for business or held for production of income.
  • It has a useful life exceeding one year.
  • It wears out or loses value over time.

Property is not eligible if:

  • The property has one year or less expected useful life.  This property can be deducted as current expenses in the year it is purchased.
  • The property disposed in the same year it is purchased.

Now I hope that gives you a better understanding of what you can depreciate.  If you have any questions about specific property, leave them in the comments.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Making Adjustments to Depreciation

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When calculating depreciation, there are many variables (Cost, Depreciation Method, Recovery Periods, First Year Convention and the accuracy of the original calculation) involved that impact the depreciation amount calculated for each accounting period.  This complexity causes differences between software packages.  Since the previously calculated numbers have already been entered into your General Ledger, new software needs to adjust its calculation to “match” the existing total accumulated depreciation amount.

This is accomplished by calculating depreciation and then comparing its calculated amount to your existing total accumulated depreciation.  The difference between the two numbers becomes the adjustment amount.

The key concept that sometimes causes confusion is the adjustment date.  Since the new calculation needs to be adjusted to match your existing total accumulated depreciation, a date must be assigned.  This ensures that the calculations match “as of” the adjusted date.

Example:

  • Old Calculation   $100
  • New Calculation$ 90
  • Adjustment$ 10

Your total accumulated depreciation “as of” the close of the selected accounting period becomes the “Opening Balance” in a new software package.  Reports run AFTER the adjustment date will be accurate.  Reports run BEFORE the adjustment date WILL NOT match original historical calculations, since the calculation is generated by the new software program.

Switching to a new software package for managing fixed assets and calculating depreciation can be a challenge.  Make sure you choose a solution that supports adjustments to depreciation to ensure consistency with the numbers already posted to your General Ledger.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.